Flood of IPOs expected when equities revive

Investors can expect a flood of initial public offerings once equity markets show signs of stabilising but until then governments and private equity owners will be reluctant to sell.

A record number of initial public offerings, estimated to be around $US200 billion ($213.26 billion) by stockbroker EL&C Baillieu, is sitting on the back burner waiting for equity markets to improve.

“You just can’t push the button on an IPO with the market up 3 per cent one day and down 3 per cent the next," EL&C Baillieu director Ivor Ries says.

“We just need a bit of stability, we need several continuous weeks of the market being relatively stable."

AFR
AFR

Miclyn Express Offshore
, the year’s biggest float at $300 million, has had a lacklustre performance, having dropped 15 per cent from its $1.90 offer price.
Myer
, which was floated at the end of 2009, has easily been the biggest float since the financial crisis at $2.5 billion.

RBS equity strategist Greg Goodsell says companies are waiting for a more enticing market before listing.

“When people come to price an IPO they have got to price it relative to the current market," says Goodsell.

“The market is not attractive enough at the moment because the prices on offer are significantly discounted."

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The market is trading on a forward price to earnings ratio of 11.1 times, well below its long run average of 14 times.

Since hitting 5000 points in April the market has sunk 7.7 per cent and has been struggling to break out of a narrow trading range. And that’s the explanation for the significant backlog of IPOs, says Goodsell.

In Australia, the backlog is estimated to be in excess of $9.5 billion, in Hong Kong it’s $59 billion, Europe $55.8 billion, Russia $27 billion and the US $70 billion.

“At the moment the level of backlogged IPOs is at an all-time high," says Ries.

So what will be the catalyst to get governments and private owners to list their businesses?

Ries says if we get a couple of successful IPOs to go off then others will be tempted to follow. “IPOs are a bit like sheep, everyone’s waiting for the bellwether to jump," he says.

Valemus Group, a subsidiary of German giant Bilfinger Berger, is among those companies in the queue waiting to list. The construction company’s $1.3 billion IPO was pulled at the last minute in early July after interest peaked.

But now Bilfinger says it is preparing another attempt at a float, this time in Easter next year.

However, the latest proposed date is still subject to market conditions, which at this stage don’t look like being any more stable in six months.

The low level of interest in IPOs is highlighted by the Queensland government’s desperate attempts to stir interest in the $3 billion float of Queensland Rail via a blitzkrieg of television and print advertisements.

The float is tipped to go ahead in November and is being billed as the biggest public offering since Telstra.

A possible float of PBL Media could also be in the pipeline as private equity parent CVC Asia Pacific moves to refinance the company’s $4 billion debt.

There is speculation the company may float as early as next year.

However, CVC has until February 2013 before it needs to refinance.

“I don’t think it’s shortage of cash," Goodsell says of why the long line of IPOs hasn’t gone to market. “It’s just a hesitation around valuations."

Across the developed world, IPOs are backing up as investors baulk at paying above market valuations.

Ries says the vast majority of companies could wait for markets to improve before floating.

“The owners are not going broke. It’s annoying and it does hinder the business but there are very few companies that really have to go," he says.

“The great majority of companies are owned by those who don’t have those pressures."

In the US, the government is preparing to float General Motors, once the world’s biggest car manufacturer before being bailed out by the Obama administration. The car maker, which is 61 per cent owned by the US, is trying to raise between $US12 billion and $16 billion.

If the IPO proceeds it will become the second-largest in US history, behind Visa’s $US19.7 billion initial offering in March 2008.

Another well known international company waiting for its chance to list is popular internet telephone service Skype. The company is tipped to be trying to raise $US100 million and could be the largest IPO in the technology sector since Google in 2004.

IPO markets may be shut in Australia, Europe and the US, but in India they are open for business.

“The IPO market in India has been explosive," Ries says,

“The level of oversubscription has been outstanding".

During the year 46 companies in India have listed, raising about $US8.5 billion and there are more to come, including Coal India, which is selling a 10 per cent stake in the company to raise $US2.7 billion.

On average IPOs in India have had an oversubscription of 14.6 times.

“The irony about India is that it has mostly been foreign investors picking up the stock," Ries says.

“People who won’t take part in an IPO in the US or Europe have been buying all this Indian stock in companies you’ve never heard of."

While the market at home may have been rough, it hasn’t deterred some companies from pushing ahead with a listing on the Australian Stock Exchange.

The performance of the debutantes has varied widely, and has been a little on the cool side since Myer’s infamous debut in November last year.

Hunnu Coal takes the cake as the best float recently. The Mongolian coal explorer has put on 340 per cent since listing early this year.

Hunnu Coal is hoping to produce thermal and coking coal for the Mongolian and Chinese markets and recently announced it had been granted an option to acquire another Mongolian coal project.

Of the listings on the stock exchange this year, more than half have been mineral explorers and most have raised small amounts to fund exploration in the range of $10 million to $20 million.